Setting your investment goals

To invest successfully you need to set goals and select the best investments to achieve them.
To assess your current financial situation, and how much you can afford to invest, you should prepare a budget. This will help you work out how much you can afford to invest.
Then you need to work out your goals.

Why should I invest?

There are a number of goals you may want to achieve from investing, but they're likely to fall into one, or both, of the following categories:

1. Capital growth: building and protecting your money

Capital growth at a real rate (after fees, tax and inflation) means you want the original investment amount to grow by more than inflation, so you'll be able to buy more in the future than you can today.

2. Income generation: paying yourself an income

You may be at the stage in your life when you choose to live off your investments. Typically, this is when you retire and want to use the money you have invested to support your lifestyle. You're likely to look at investments where there is a stable income or dividend stream and little risk of your original investment declining.

Short versus long-term goals

You may have a mixture of short, medium and long-term goals. As investments vary in risk and return, you need to understand your goals and match your investments to them

For instance:

  • In the short-term you may be saving for a car or to take an overseas trip, so you need easy access to your money and the return is reasonably certain. The investments to suit these goals could be banking products, where there's no risk of losing any of your money even though the return may be lower compared to other types of investments.
  • At the other end of the spectrum, a medium to longer-term goal may be saving for your children's education or a deposit for a house. Here, you should consider investments more likely to grow in value over the longer term. Growth assets, such as shares, carry more risk but may be more likely to help you achieve this goal.

You still have some searching to do to find the best investments within these broad categories. Knowing where to look will cut down your search time and help you find the right one.

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